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Banking giant stays profitable but net income plunges 84% on charge related to WaMu purchase. CEO Dimon warns of 'reduced earnings' ahead.

Last Updated: October 15, 2008: 8:33 AM ET


NEW YORK (CNNMoney.com) -- JPMorgan Chase reported a surprise quarterly profit Wednesday, even as the company took a hit related to its purchase of failed savings and loan Washington Mutual and warned of earnings pressure in the months ahead.

The New York City-based bank said net income fell 84% to $527 million, or 11 cents a share during the third quarter, from $3.37 billion, or 97 cents a share, during the same period a year ago.

The results were far better than analysts were anticipating. Wall Street was expecting a loss of 21 cents a share, according to figures from Thomson Reuters.

Revenue fell 9% to $14.73 billion, down from $16.11 billion a year ago, and missing analysts' forecasts of $16.01 billion.

Investors were leery of the news. Shares of JPMorgan Chase (JPM, Fortune 500) initially climbed in pre-market trading, only to fall 1% ahead of the bell. The stock was one of the few major banks to finish lower Tuesday.

Jamie Dimon, JPMorgan's chairman and CEO, noted that the company gained market share in the investment banking market and an increase in consumer banking customers in the quarter. But he still offered a cautious outlook.

"Given the uncertainty in the capital markets, housing sector and economy overall, it is reasonable to expect reduced earnings for our firm over the next few quarters," Dimon said in a statement.

Weighing on the company's results was a $1.2 billion charge related to its purchase of the Seattle-based Washington Mutual nearly three weeks ago.

JPMorgan stepped in to buy all the banking operations of the troubled thrift from the U.S. government for approximately $1.9 billion immediately after it failed.

Also dragging down JPMorgan's results was a $642 million loss related to ownership of Fannie Mae and Freddie Mac preferred shares, a $248 million charge due to plans to repurchase auction-rate securities and a $3.6 billion in writedowns the company was forced to take on its mortgage-related investments and leveraged loans.

JPMorgan Chase reported a spike in new credit card and retail banking customers during the quarter but the company was once again forced to set aside more money for bad loans. All told, JPMorgan said it added $1.3 billion to its credit reserves during the quarter.

It has been a dizzying time for both the domestic and worldwide banking industry over the past month-and-a-half, which has included massive consolidation in the sector.

Hoping to bring an end to the fallout, both foreign and U.S. officials have announced sweeping plans in recent days to prop up the industry.

On Tuesday, Treasury Secretary Henry Paulson, along with Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair unveiled plans to inject $250 of capital into U.S. banks in exchange for an ownership stake in these firms.

The Treasury Department said Tuesday it was beginning this program by investing $125 billion in a group of nine leading banks that include JPMorgan Chase as well as rivals Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), Morgan Stanley (MS, Fortune 500) and Wells Fargo (WFC, Fortune 500), which also reported better-than-expected results for the third quarter Wednesday.